[ I N - D E P T H
“The fact that the
industry as a whole
was able to introduce
MiFID II without any
major issues is to be
commended.”
IAN COHEN, GLOBAL HEAD
MARKET STRUCTURE & EXECUTION
STRATEGY, HSBC GAM
dent, Glenn Poulter.
Much was made of whether
buy-side firms would pass the new
fees of paying for research on to
investors or absorb those costs into
their own P&L, but asset managers
largely fell into line with the latter
option, while the sell-side have
had to consider how they price
research. Conflicts between those
two objectives having a significant
impact on the relationship between
the two groups, Poulter says.
“There is a real stand-off between
the buy-side and the sell-side with
regards to research pricing, and
realistically that debate isn’t really
changing,” he says. “We’ve now had
two quarters of research payments
and these are significantly lower
than a year ago. Sell-side firms
need to start thinking about the
long-term implications on their
business model as revenues gener-
ated from research will significant-
ly impact firms margins negatively.
By the end of this year we’ll have a
clearer idea on the overall impact.”
Five years ago, the European
research market was valued at
around $3 billion by research
agency McLagan, but Poulter
says that the buy-side have since
slashed their research budgets by
as much as 50-70% in the wake of
the unbundling rules, a reduction
of $1.5-2 billion on the value of five
years ago.
“Obviously lower commission
generated from research will have
long-term implications on the
research market landscape,” says
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M I F I D
I I ]
Poulter. “We have seen broker lists
significantly cut as fund managers
cannot now receive research with-
out paying for it, as this is deemed
as an inducement by the regulator.
The research ecosystem is playing
out this year and it will be interest-
ing to see how the specialist firms,
the likes of Bernstein and Redburn,
who have very large research teams
start to re-position their business
models. On the buy-side the real
impact, however, is going to be
around the reduction of research
for small and mid-cap compa-
nies. It’s a real concern for them,
especially if they don’t have any
in-house research capabilities.”
While the changing research
relationships continue to play out,
larger firms that have the resources
to manage the issue should be in
a better position going forward,
according to HSBC Global Asset
Management (HSBC GAM) man-
aging director, global head market
structure & execution strategy, Ian
Cohen.
Issue 57 // TheTradeNews.com // 31